Four Tax steps policymakers expect businesses to take on climate change

Collaboration between government and businesses is paramount when addressing sustainability challenges.

In brief

• Businesses must act to address the expectations of stakeholders, including policymakers.
• Climate inaction can result in dramatic cost and risk increases. 

With each passing year, the risks of not acting on climate change become more evident. Government and businesses both have roles to play, and significant change can only occur when they work together toward common goals.  

Both the government and business sectors can use their respective spheres of influence to advance climate solutions. As always, collaboration will lead to the most meaningful progress.

The good news is businesses have many opportunities to be proactive and work with policymakers toward greater environmental sustainability. And doing so is imperative to meet the growing demands of investors, suppliers, customers and employees.

Government requirements and timelines no longer allow for a passive approach. There are four action steps businesses should consider as they continue their sustainability journey. 

1. Make your climate-related activities more transparent

Company pledges about emission reduction goals are a step in the right direction, but regulators and stakeholders want to see results and accountability. They want ambition transformed into achievement.

It is time for companies to evaluate their readiness to disclose more climate-related information. In March 2022, the Securities and Exchange Commission (SEC) proposed new rules (pdf) to enhance and standardize disclosures registrants make about climate-related risks, their climate-related targets and goals, their greenhouse gas (GHG) emissions and how the board and management oversee climate-related risks. The SEC proposal would also require registrants to quantify the effects of certain climate-related events and transition activities in their audited financial statements.

Increasingly, investors, customers and employees are demanding such information, and businesses need to be ready to respond. By telling their sustainability stories – by documenting their efforts and sharing positive results and knowledge gained along the way – businesses can lead by example and motivate others, both within their organizations and outside them.

2. Measure climate-related progress in real ways

Meaningful transparency can only be achieved when companies are able to model, plan, track and monitor their climate commitments. Businesses will benefit from identifying measurable targets and developing the roadmaps needed to achieve them. This will require carefully examining the entire supply chain to gain a detailed understanding of where emissions come from and where to focus GHG reduction and decarbonization efforts. Quantifying the impact of choices made and, when appropriate, employing financial incentives to encourage environmentally sound options will improve accountability. It can also help raise awareness and encourage climate-friendly action and activities among employees and other stakeholders.

3. Innovate to differentiate

Environmental concerns touch every region, industry and community in some way. Businesses that identify new products, processes and technologies that address climate-related challenges and implement sustainability initiatives will be differentiated in the market. Additionally, climate-related initiatives can lead to new employment opportunities and become a powerful engine for economic growth.

4. Collaborate with the public sector to stay in the game 

Sustainability policy is a dynamic playing field. Meaningful, robust policy is a matter of collaboration between many parties. By maintaining an open dialogue, businesses can help policymakers better understand how proposed changes may impact business operations and employment opportunities. Communication between businesses and policymakers leads to environmental policies that have the appropriate mix of “carrots” and “sticks.” Such a mix is more likely to achieve global and local climate goals that last. Tax is an integral part of the discussion as a key source of funding for climate-favorable activities.